Accounts Receivable Financing FAQs

Accounts receivable financing helps you tackle the cost of running your business when you are waiting for outstanding payments.

Let’s review some of the reasons why your business may need to use accounts receivable financing:

Slow Season
When your outstanding invoices are left unpaid, receiving payment is a top priority as your seasonal lull approaches. Maintaining sufficient working capital is crucial to sustaining your business. Accounts receivable financing can keep you above water while you wait for your clients to pay.

Growth Opportunities
Sometimes opportunities to take your business to the next level come when you don’t have enough working capital to act on them. Accounts receivable financing will provide you with the money you need to stay focused on your business’s opportunities for growth.

Emergency Situations
In the world of business, you need to expect the unexpected. Emergencies happen, and when they do, they can cause a significant gap in your cash flow, especially when you have a number of outstanding invoices. Invoice financing fills that gap, allowing you to handle emergency expenses that come your way.

Peace of Mind
When you have a large amount of capital tied up in outstanding invoices, it’s understandably unsettling. With accounts receivable financing, you can unlock that capital now, before you’re pressed for time (and for cash).

Applying for accounts receivable financing can be accomplished with an online business funder. But how do you determine who to work with? Fast Capital 360 can pair you with the best accounts receivables financing companies on the market.

The application takes only minutes to complete and asks for simple business details and contact information.

Here’s how it works:

Step 1: Tell us about your business.
Tell us how you plan to use your funds and share information about your company.

Step 2: Tell us about you.
We need to learn about you so we can determine your eligibility. But don’t worry, this won’t impact your credit score.

Step 3: Submit additional financial documentation.
Upload financial documents to complete your application. We’ll review your accounts receivables and your financials to confirm your business has the cash flow to afford the recurring advance payments.

Step 4: Get funded.
Funds are deposited in your business bank account in as little as 24 hours.

One of the benefits of accounts receivable financing is that your customer’s financial qualifications (not your business’s) are what matter most to accounts receivable lenders.

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The best accounts receivable companies will perform a reputational analysis, business credit check and a thorough examination of your customer’s payment history with your company.

While the health of your business is less relevant, it will still come under review and will influence offered advance and factoring rates.

What you’ll need to qualify:

• 
  Time in business
  1+ year
• 
  Annual revenue
  $150k+
• 
  Credit score
  600+

Ready to get started? Applying is fast, easy—and most importantly— won’t impact your credit.

The cost of accounts receivables financing comes down to 3 things:

1) How long it takes your customer to pay
2) Your lender’s fees
3) Your quoted factor rate

Though fees vary by lender, expect to pay a single processing fee on each invoice you finance and a weekly factor until the invoice is paid in full.

To help you understand this cost structure, use our accounts receivable financing calculator.

Pros

• Improved cash flow: Late payments can put a strain on cash flow. By taking out a loan against receivables, you gain access to cash without having to ask your clients for immediate payment.
• Better borrower accessibility: To get approved for a conventional loan, banks often require collateral, a solid credit score and years in business. However, many small business owners don’t meet these requirements. Because accounts receivables financing is based on the likelihood that an invoice will be paid, you don’t need to provide collateral. Your customer’s ability to repay their debt is what matters most to lenders.

Cons

• High costs: Invoice financing has higher rates than many other small business financing products. Additionally, if you fail to pay back your advance within the agreed upon repayment term, your total repayment amount will increase.
• Hold backs: Your accounts receivable provider will typically keep a portion of your invoice funds until your invoice is paid in full.

Typically, the following invoice characteristics will result in the most favorable accounts receivable financing rates and terms:

Newer invoices

Newer invoices are seen as more valuable since the possibility of payment is more likely compared to older invoices. You can increase your chances of qualifying for accounts receivable financing if your invoices have only recently gone past due (between 30-90 days).

Larger companies

Lenders find invoices more valuable if a larger business with significant annual revenue is responsible for payment. On the other hand, if your client lacks working capital, you may not qualify due to the risk that comes with your invoice.

Smaller invoices

Small invoices are less of a gamble to lenders. The less money your client owes, the more likely they are to pay.

If you operate in the business-to-business (B2B) space and issue invoices with clear repayment terms, you’re eligible for invoice financing. It’s an especially useful tool if you work in an industry with long payment cycles, as financing receivables allows you to tap into the cash that’s tied up in that process.

What’s more, as lending decisions are based primarily on the quality of the invoices themselves, the review process is far faster than you’d experience when applying for a conventional small business loan. In fact, funds are issued the same day you apply in many cases.

Consider invoice financing if:

• You operate in the B2B space and you carry a high receivables balance
• You’re experiencing a short-term cash-flow shortage
• You’re presented with a business opportunity, but you don’t have the cash reserves to support it

The terms “invoice factoring”, “accounts receivable financing” and “invoice financing” are often used interchangeably. But they are two distinct funding products with a few small but fundamental differences.

Invoice factors buy; accounts receivable financiers advance. Factors purchase invoices at a discounted rate while receivable lending companies accept invoices as collateral for an advance.

Factors take on the responsibility of collecting payments from your customers; accounts receivable lenders leave that task to you.

In accounts receivable financing, you own the invoice and the customer relationship. That means all collection processes stay with you. In contrast, invoice factors take this responsibility over, as they, not you, own the invoice.

Step 1. Invoice selection

Select the outstanding invoices you wish to finance.

Step 2. Accounts receivables financing company deposits capital

Lenders advance you a percentage of the invoice value. The amount you receive will depend on several factors, including the size of the invoice and the industry of your customer. Typical advance rates fall within the 80% to 90% range.

Step 3. Fees accrue

The cost of invoice financing will depend on the time it takes your customer to pay. Accounts receivables financing companies charge a weekly fee, known as a factor, until the debt is satisfied. At which point, the reserve balance, minus fees, is forwarded on to you.